Beginning of the 1990s, Organizations began to use or develop new methodologes such as Time-Based Competition, Benchmarking Organization Downsizing, Learning Organization, Reengineering and Outsourcing for gaining long term competitiveness.
Information Systems Outsourcing is defined as "contracting with external vendors in physical and/or human resources associated with the entire or specific components of the various Information Systems functions in the user organization."
Early forms of IS Outsourcing were single-system contracts comprising a small portion of the IS function. They were the use of contract programmers and data processing services. But recently, outsourcing has grown to span multiple-systems, strategic coalition with vendors, co- sourcing, and process management associated with IS function.
But the integration of information systems departments in conglomerate groups is one of the major trends in Korea's information systems outsourcing market. This trend shows that Korea's outsourcing type is different from other country's.
As outsourcing contract size and scope have expanded, the relationship with vendors became more important. Thus vendor selection is critical to lead outsourcing to success. But there has been little research that focuses on vendors, and never been studied what factors are expected among outsourcing benefits according to vendors.
This empirical study is performed to explain the phenomenon of outsourcing between subsidiaries of Korean conglomerate groups that have Systems Integration(S1) company within the group.
One of the purposes of this research is to examine degree of expectations of Information Systems Outsourcing between two groups. Another is to examine the determinants of Information Systems Outsourcing decision according to each group. The first group consists of companies that the ratio to outsource from group SI company is higher than the ratio to outsource from outside outsourcing company and the second is inverse.
This study is based on previous researches. I developed two models and established hypothesis. The first model is to explain the degree of expectations on IS Outsourcing vendor between different groups. The second model is to explain the determinants of IS Outsourcing according to two groups.
The data was collected by questionnaire survey from 64 companies whch have experienced IS Outsourcing.
This study conducted the statistical analysis method to establish the hypothesis. First, the reliability of the questionnaires was calculated. Second, I practiced T-test in the first model to testify the degree of expectation about variables which I identified in IS Outsourcing literature ; 'cost reduction', 'cost control', 'improving technical service quality', 'accessing new technology', 'using expert'. Third, I practiced correlation and multiple regression analysis in the second model with 6 variables which were 'cost reduction', 'cost control', 'improving technical service quality', 'accessing new technology', 'using expert' and 'reputation of vendor in industry' to examine on determinants of vendor selection in the outside outsourcing companies for the second model. Forth, regression analysis was practiced with 'political factors' which conceptualized by Pfeffer to examine on factors within transaction of subsidiaries of conglomerate groups in Korea's outsourcing market. In addition, I practiced correlation and multiple regression analysis with 6 variables which used in outside outsourcing group and 'policy of head company'.
The following is the result of T-test and two regression analyses.
The T-test result shows that companies to outsource from outside vendors have more expectation than companies to outsource from group SI company for 'cost reduction', 'improving technical service quality', and 'accessing new technology'.
The result of the multiple regression analysis on the determinants of vendor for the outside outsourcing company shows that 'accessing new technology' and 'cost reduction' are the chief factors.
The third result shows that 'policy of head company' is an important factor in the outsourcing decisions of the companies which outsource from group SI company, and result of the additional analysis shows that the transactions between subsidiaries of conglomerate groups are affected by 'policy of head company', 'cost control', and 'reputation of vendor in industry'.
With these points, this research has the meaning of being an empirical study of the outsourcing phenomenon of Korean companies, and reveals that different effects can be caused by different outsourcing vendors. Because the results of outsourcings are greatly affected by the relationship between the vendor and the demander, the transactions between subsidiaries of conglomerate group without consideration about benefits or risks are to be avoided. And the outsourcing target and vendor selection should be based on the complete understanding of the company's IS status to gain a true competitiveness. Moreover, this research suggests that outsourcing service providers should make more efforts for improvements so that their specialty and technical knowledge can be appreciated.